Jack Ma founder and executive of Alibaba : Fake goods can be better than the real deal

Alibaba founder and executive chairman Jack Ma, who stands accused of effectively endorsing counterfeit goods while speaking at an investor event. On Tuesday with a comment that fakes were sometimes better quality than originals, the Wall Street Journal quotes the executive as saying that :

“The problem is the fake products today are of better quality and better price than the real names,” he said at Alibaba’s investor day in Hangzhou. “They are exactly the same factories, exactly the same raw materials but they do not use the names.”

It's a big issue for Alibaba, since its consumer-facing retail portals have something of a reputation for being the place to go when you want a knock-off device.

The paper explains that Alibaba has been under pressure to do something about its piracy problem for a while. Last month, a prominent group, the International AntiCounterfeiting Coalition, suspended a newly created category under which Alibaba was admitted, after U.S. fashion brand Michael Kors and Gucci America Inc. withdrew in protest. Michael Kors called Alibaba “our most dangerous and damaging adversary” in a letter to the coalition.

An anti-counterfeiting group attempted to include Alibaba amongst its membership, prompting luxury brands like Tiffany, Michael Kors and Gucci America to kick up a stink. The company even received censure from China's industry regulator, which said that (retail portal) Taobao has "paid insufficient attention to the illegal business activities on Alibaba platforms." The company derided the claim, saying that the report was "biased" and "malicious," causing "serious damage" to Chinese businesses that operate online.

As for Mr. Ma’s comments themselves, closer scrutiny indicates he was describing one longstanding reason for the spread of fakes in China: outsourcing. Although Mr. Ma called it a “new business model” in China, his descriptions were mainly about the key flaw of contract manufacturing: Intellectual property ends up in a supply chain that firms can’t fully control.

Observers could be forgiven for interpreting Mr. Ma’s comments on the outsourcing model as a tactic to deflect attention away from Alibaba’s role in the spread of fake products.

Issues around contract manufacturing aren’t new for Western brands.

If you use a contract factory in China to produce your goods, don't be surprised if high-quality fakes pop up online. -That's the feeling of Alibaba founder and executive chairman Jack Ma.

Mr. Ma said that while these copycatters have always existed in China, the internet has made it easier for these Chinese producers to connect with customers and sell their products.

This is certainly true for smartphones. In the past, the necessity of physical sales channels resulted in a high barrier to entry. The ability to do all your sales online – a model spearheaded by Xiaomi – resulted in a boom of little-known Chinese smartphone brands that tapped the same supply chain as global mobile brands to make similar products at lower prices.

Chinese electronics makers like Oppo and TCL – and most major Taiwanese electronics brands including HTC, Acer and Asus – all got their start as contract manufacturers that branched into brands in their own right as they became more technically proficient and innovative. Asus, for instance, juggled making products for companies like Apple while selling under its own brand for years until the conflict became too large and it spun off its contract-manufacturing division. That unit, Pegatron, still makes iPhones today, while Asus makes electronics under its own brand.

In his speech, Mr. Ma was speaking about the inevitability of fakes due to “human instinct” and said Alibaba would continue fighting them, even calling Alibaba the world’s “leading fighter of the counterfeits.”

“Every fake product we sell, we are losing five customers,” he said. “We are the victims of that. We never stop fighting.” Ma is, at least, correct that pirated devices are often made in the same factories and on the same lines, that the real gear uses. For instance, a third-party facility might have a contract to produce 30,000 sets of high-end headphones or microSD cards. But once the run is complete, it could be possible to rush out a further 10,000 with leftover parts and some cunning alterations to the name -- Boots by Drew or SpanDisc.Source: WSJ